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Yukon banker Doug Tippens asked a surprising question as July wheat prices on the Kansas City Board of Trade hovered near historic highs at $10.68 per bushel Monday.

"What is the true price of wheat?” asked Tippens, president and chief executive officer of Canadian State Bank. "I don't think anybody knows.”

Certainly, it's not $10.68, Tippens said. Or it wouldn't be at that level without billions of dollars from hedge funds that have artificially caused the price to soar since the first of the year, he said.

For instance, one year ago the price of the July 2007 wheat contract on the Kansas City market was $4.88 a bushel. Two years ago on the same day it was $4.05 for a July 2006 contract.

The difference? The Commodity Futures Trading Commission — the government agency that regulates the grain trading markets — opened the markets to unlimited trading by giant hedge funds last year, said Joe Neal Hampton, president of the Oklahoma Grain & Feed Association and Oklahoma Agribusiness Retailers Association.

"It is estimated that $8 billion has flowed into ag futures since the start of the year,” Hampton said. "They never have any intention of owning that grain. This ongoing large investment has served to drive general commodity prices to ever higher prices, often in disrespect to prevailing fundamentals.”

The giant amounts of cash that the hedge funds have thrown into the grain markets have created a wild volatility, said Kim Anderson, professor and market economist at Oklahoma State University.

"As they buy, the market is going to go up higher than it would otherwise,” Anderson said.

So, how are high prices bad for Oklahoma grain elevators and the farmers who sell their wheat to them at harvest?

Traditionally, farmers are paid when they sell their wheat to the local elevator, which then markets it to grain traders along the Gulf of Mexico or Fort Worth, Texas.

"Here's the thing that has got me a little concerned,” Tippens said. "We have all these grain elevators in western Oklahoma that have contracted the wheat. Used to the protocol was the farmer pulls his grain across the scale, he has 300 bushels and says ‘sell it.' He walks inside and gets a check.

"Now, it's almost a little bit scary as to when they are going to get paid. Are they going to have to wait until the elevator gets paid?”

Another risk: farmers sell their crop before it's harvested through forward contracts so they can lock in the price in advance.

The grain elevators hedge their risks by selling the contracts on the grain markets.

But if the price of the grain suddenly goes up the elevators are caught in what is called a margin squeeze, where they must pay the difference in the price they sold the contracts and the new price of the grain.

So, local grain marketers must maintain a much larger line of credit at their bank to maintain the margin payments and pay farmers at harvest.

In fact, Mike Cassidy, president of Cassidy Grain in Frederick, recently said that his business will need a $10 million to $12 million line of credit this year after operating on a $2 million line of credit for a quarter of a century.

Also contributing to financial strain is the shifting "basis,” or the amount on each bushel that is subtracted from a farmer's selling price for transportation and the elevator's profit.

The basis has grown from 50 cents per bushel to 70 cents to as much as $1.20.

"If those country elevators if they didn't protect their basis risk, technically they could be insolvent,” Tippens said. "That brings up another problem. I've got customers who will produce 50,000 bushels of grain, that's half a million dollars. Tippens is a long-time ag lender who has reduced the amount of agriculture lending at his bank to about 15 percent of his loan portfolio. Wheat priced on a speculation bubble won't help the credit situation of farmers or grain elevators, he said.

"It's in no way a reality of what the real cash market or the new crop, what the real value is,” Tippens said. "It's almost counter-intuitive to what all of us know, almost to the point where I won't let customers use this tool (hedging) any more because it's so damaging to the market because we don't know what the price of wheat really is.”

The solution to wild price swings and prices far above what industry fundamentals would dictate would be to limit the number of bushels that hedge funds can control, both Tippens and Hampton said. Treat them as "speculators.”

"We need to get the index funds out,” Hampton said. "They need to be considered what they are, and they are speculators.”

The situation was created by a "pure power play with money,” Tippens said.

"If the CFTC would come back in and put those limits back on I think you would see the market probably adjust back to what the real price of wheat is,” he said.